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Future of Movies After Coronavirus: Producers Preferring Digital Releases and Shortening of Theatrical Windows

May 18, 2020 3:27 PM 5 min read
Editorial

Amazon Prime Video announced the release of Amitabh Bachchan and Ayushmann Khurrana-starrer Gulabo Sitabo on its platform on June 12th.

Soon after, the platform announced the premiers of six more Indian movies over the next three months.

But INOX and PVR, two large theater chains that together run about 1,500 screens in India, said they were taken aback by the move and expressed “extreme displeasure and disappointment.”

Now streaming platforms carry mainstream titles all the time. So, what’s different this time?

Well, these seven movies are completely bypassing their theatrical release, reaching viewers directly on their home or mobile screens. This is quite unlike the norm where mainstream releases generally hit theatres first before subsequently being distributed over other channels.

 

future of movies after coronavirus

 

INOX, which has over 600 screens in India released a rather disgruntled statement and went to the extent of warning content producers of retributive measures. 

PVR had a more measured reaction to the crisis, if we may say so.

The Producers Guild of India, which represents the leading filmmakers in Bollywood condemned INOX and PVR’s stance.

Amazon Prime Video’s announcement comes in the middle of a coronavirus outbreak that has forced India to maintain a nationwide lockdown, leaving theatres abandoned with direct near-term consequences for movie producers.

Given the emerging noise around the Theatres vs Producers narrative, it is perhaps worthwhile to assess the impact of “theatrical windows” and how it might take elevated relevance in a post-COVID world.

Theatrical Window is an integral component of the film value chain, representing the time between a movie’s theatrical release and its first availability on an alternate distribution channel such as broadcast channels, and streaming platforms like Netflix, Hotstar and of course Amazon Prime Video.

 

theatrical window and its gradual shortening

 

Theatrical Window and its gradual shortening over the years has been a subject of extensive debate for various industry participants (studios, distributors, Theatres, artists, digital delivery networks, television networks etc) in the Western world.

Discussions range from identifying the appropriate length of a typical window to questioning their outright existence. On one hand, windows offer a protected ring-fenced revenue generating edge for theatres, on the other hand, production studios increasingly feel shorter windows could potentially boost earnings from non-theatrical avenues. This is even more relevant in a time when theatres are effectively shut down!

Now while the discourse has gained some steam in the West, in India, it is still in its infancy But theatres companies like INOX and PVR are worried, perhaps rightly so, because for one it sets a dangerous precedent. A precedent, which when coupled with COVID-19’s ability to meaningfully sway consumer behaviour can create a lethal cocktail severely denting their competitive advantage.

For a moment let us assume that the theatrical window collapses. What does it mean for stakeholders?

 

Producers, Distributors and Studios

They might actually stand to gain from a shrinking or zero day theatrical window.

 

How so?

First, the potential downtick in theatrical revenues from such a collapse could perhaps be more than offset by higher revenues from these new outlets. In fact, the sooner it is sold on alternate channels, higher the price studios can possibly claim.

Second, the massive marketing efforts undertaken by distributors and studios for a movie’s theatrical release can now be somewhat shared with cash-rich platforms such Amazon Prime Video who continue to use content as a tool to differentiate.    

Third, quicker legitimate ways of viewing a movie in a non-theatrical set up allows some sort of defence to revenue leakage due to piracy.

Finally, cinemas are unlikely to open all at once, especially in some states that have a high cinema-going population such Maharashtra, Gujarat, Delhi, Karnataka and Madhya Pradesh, but have recorded a higher number of COVID-19 cases vis-a-vis other states, producers might have to wait longer than anticipated. All this complicates the entire exercise around promoting a movie. Furthermore, there is no guarantee of overseas theatrical market to open anytime soon - a key component of film economics, especially that of Bollywood.

 

Exhibitors

They, unfortunately, would emerge as the ultimate losers. Exhibitors have historically milked untouched exclusivity for the duration of the window and have leveraged it to monetize movies under a per patron pricing model. Per patron pricing is unique to exhibitors unlike a Netflix, Amazon Prime Video or Television wherein one subscription or even one rental can serve many eyeballs. Exhibitors typically collect around 50%-60% of box office receipts (passing on the remaining to distributors) and the fact that the movie is available exclusively only at theatres is a nice source of competitive advantage. So, a collapsing theatrical window certainly does not bode well for them.

A quick glance at INOX’s financials reveals their reliance on Pricing to drive top-line growth. While attendance has been choppy (as it can meaningfully vary depending on the quality of the film slate), revenues have crept up. In the two-year period between 2016 and 2018, INOX’s footfall was largely flat but revenues ticked up at 6%+CAGR driven entirely by a 6%+ CAGR growth in average ticket price. In such a scenario, if theatres lose their competitive advantage (of exclusive availability) not only does footfall get pressured, there is all of a sudden, a massive pricing pressure and challenge of justifying lofty price points. A true double whammy indeed!

In fact, INOX identifies the following strategic risk in their annual report “A material reduction in the cinematic window can have adverse impact on cinema admissions.” But then it eases this concern by going on to say “We do not expect any significant change in cinematic window in near future, however, we continually monitor the status of this discussion and regularly engage with industry peers.” That expectation is no longer true!

 

INOX Annual Report FY 2018-18
Source: INOX Annual Report FY 2018-19

 

The harsh comments and fears don't seem so unfounded now, do they?!

 

Consumers

Well...here are some replies to INOX’s tweet:

 

some replies to INOX’s tweet

 

But will an OTT-platform albeit a gigantic smart screen or a firestick to go along, with a roaring home theatre system be able to replace the theatre going experience? Will the core enthusiast movie watcher still end up going to the theatre even if the movie is available on a streaming platform? How critical are “theatrical windows” as a source of competitive advantage for Theatres? What will happen when normalcy returns?? Only time will tell.

FIN.

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